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The wisdom of a Russian grandmother: today’s financial bubbles are trouble

With financial uncertainty ahead, good financial advice can come from the unlikeliest of places

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Last February I wrote about an elderly Russian “Znakhar”, which in English would be a person who is a blend of a seer, witch and healer. I run across her in my Moscow neighborhood from time to time and we mostly limit our chats to polite hellos, as metaphysics is not something I hold in high regard. Last year however, she paused and approached me.

“You are that foreigner, no?” I nodded smilingly. “Be ready for very big changes to begin as we approach the middle of this coming March. It is just as well you now live here with us in Russia, you would not want to live elsewhere for a long time to come”.

Curious, I asked what makes her believe that the world outside of Russia will stress out, and why tell me. Not answering directly, she went on to say, “Better you get rid of your “valyuta” (US$/Euros) and turn them into rubles or better still, gold St. George coins. Very big changes are now destined to happen and much will turn upside down, so be ready”. I thanked her for her pithy global commentary and bid her a good day as she shuffled off into the nearby church.

This incident got me thinking a year ago, first why she chose to speak with me and not simply nodded a hello as usual. Secondly, why she chose to deliver her somewhat disturbing opinion to me, “that foreigner”. Since equity and commodity markets are areas where from time to time I am engaged, the first thing that came to mind then was market bubbles… could this uneducated old lady now be analyzing the economic rhythms of the western world, and making her prognosis to me? Furthermore, what elements could be gathering steam now that might prove to be so calamitous? Then thinking… I must be nuts to even dwell on her ramblings.

Since then I have run into her in the local farmers market or simply walking near my home. Today I stopped and chatted since a year had passed since she laid her initial “foreigner” prognosis on me. I asked her “do you still think the world is going to hell in a handbasket?”

She simply looked me in the eye and answered “Most assuredly. The ways of this world are not like a train schedule, nor should you expect them to be. There is no doubt that last winter when we spoke, the changes have begun, and they have been gathering strength. One morning we shall wake up, no doubt surprised that so much has happened and we did not notice the process until it has passed us and we eat its dust”. I thanked her for the wise words and proceeded on my way to the Metro station and my office.

The Russian folklore witch, Baba Yaga

One thing I acknowledge the “Znakhar” does well is that she puts me in a mood to reflect. Undoubtedly we now live in a time when a number of “unquestioned” components of the economic and geopolitical world are under intense re-evaluation; politicians, fake vs. real, the dollar, Euro, central banks, Federal Reserve, QE, ZIRP’s, NIRP’s, Crypto’s, and historically unprecedented debt of all types. Unquestionably a nervous time, and in many ways engendering a Stockholm-like syndrome of denial…. shall we go on as before, what can really happen?

Well, just last week we witnessed rather sudden and sharp global market spasms starting in the US, which may be a prelude to what is likely to repeat. We see interest rates largely rising throughout the world whereas the business culture has grown used to ‘cheap money’ as this past decade’s new normal. Much has been built up on the back of cheap funds and the prospect of paying double or more to settle credits taken is a dismal undertaking. Looking back at rates these past 10+ years, today the downtrend line(s) have been broken, suggesting long-term trend changes.

What has changed in market perception? Following the money is usually a good place to start. One item that sticks out is the interbank lending among US and western banks. Towards the end of 2017 interbank lending sharply dropped. In fact, it dropped to pre-1974 recession levels of approximately $12.7 billion. Since 2008/09 the amount of interbank lending has steadily decreased with the strong possibility that the players were acutely aware of their own, hence their counter-party’s remarkably weak balance sheets.

Whatever the case, the reasons for interbank lending to collapse has two likely reasons, either there is no longer a need for credit, or there is an absence of trust in the interbank lending world. It would seem to me that a lack of trust is the more probable. Remember, the bedrock of fiat currencies is trust.

A further factor to consider is velocity of money. If the markets believe inflation therefore rates are going higher it generates fear or as we used to say “the anxiety quotient”. Fear that financial instruments will be worth less because they are “discounted” against interest rates. There is also the very real anxiety of losses due to bankruptcies whether by an issuer or counterparty. Higher rates also means no more easy ability to refinance or to “roll over” debt”.

It is worth keeping in mind that all fiat currencies are debt based, so the fear factor will be seen expressed not only in the sale of bonds but the underlying currency, be it the US Dollar, Euro, Yen or similar. The velocity of these currencies will turn markedly higher as market participants finally “spend” them to get free of the denominated equities or debt instruments trap.

The markets have changed, and if last week was any indication of things to come it may be only the appetizer. I think most would agree that 2017 and the first month of 2018 were abnormal for equities. Stocks as an asset class were never meant to go straight up without even a smidge of a pullback. That is exactly what happened for an entire year.

What has been the case in the past decade is that the central banks have openly played an unprecedented interventionist role in supporting the commercial markets, some even call this the CB’s ‘Plunge Protection Team’. In the real world, in open markets, when a sell off is in process no investor has the gall, or deep enough pockets to flood markets with buy orders except the central banks, which they quietly did just one week ago. I even heard the term ‘QP’ for Quantitative Propping, no doubt the stepsister of ‘QE’.

Never in history has so much money been magically created in so short a time. The money exists and the corresponding debts are in place which seem to indicate a fertile field for inflation. In simpler financial times when money was linked to gold, we could expect at some point in these current circumstances a massive deflation.

Today however, when gold has been replaced by debt and fiat currencies, the result will again be a deflation but of a different sort. The deflation will be in currencies and credit versus gold. To those holding currencies and debt, it will feel like acute hyperinflation. Assets that derived their value from investors borrowing to purchase will deflate against gold; while quite probably still inflate against struggling fiat currencies.

In closing, I tip my hat to the “Znakhar” if for no other reason than the fact that she got me thinking on the truly interesting times we are living in, and wondering when the much touted inflection point may arrive. She may have the “crystal ball”, but I can do one better by trudging to my local Sberbank (savings bank) branch here and place a ruble order for a gold St. George coin or two, maybe that will help.

Paul Goncharoff is an American business executive working in Russia.

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Don’t Laugh : It’s Giving Putin What He Wants

The fact of the matter is that humorous lampooning of western establishment Russia narratives writes itself.

Caitlin Johnstone

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Authored by Caitlin Johnstone:


The BBC has published an article titled “How Putin’s Russia turned humour into a weapon” about the Kremlin’s latest addition to its horrifying deadly hybrid warfare arsenal: comedy.

The article is authored by Olga Robinson, whom the BBC, unhindered by any trace of self-awareness, has titled “Senior Journalist (Disinformation)”. Robinson demonstrates the qualifications and acumen which earned her that title by warning the BBC’s audience that the Kremlin has been using humor to dismiss and ridicule accusations that have been leveled against it by western governments, a “form of trolling” that she reports is designed to “deliberately lower the level of discussion”.

“Russia’s move towards using humour to influence its campaigns is a relatively recent phenomenon,” Robinson explains, without speculating as to why Russians might have suddenly begun laughing at their western accusers. She gives no consideration to the possibility that the tightly knit alliance of western nations who suddenly began hysterically shrieking about Russia two years ago have simply gotten much more ridiculous and easier to make fun of during that time.

Couldn’t possibly have anything to do with the emergence of a demented media environment wherein everything around the world from French protests to American culture wars to British discontent with the European Union gets blamed on Russia without any facts or evidence. Wherein BBC reporters now correct guests and caution them against voicing skepticism of anti-Russia narratives because the UK is in “an information war” with that nation. Wherein the same cable news Russiagate pundit can claim that both Rex Tillerson’s hiring and his later firing were the result of a Russian conspiracy to benefit the Kremlin. Wherein mainstream outlets can circulate blatantly false information about Julian Assange and unnamed “Russians” and then blame the falseness of that reporting on Russian disinformation. Wherein Pokemon Go, cutesy Facebook memes and $4,700 in Google ads are sincerely cited as methods by which Hillary Clinton’s $1.2 billion presidential campaign was outdone. Wherein conspiracy theories that Putin has infiltrated the highest levels of the US government have been blaring on mainstream headline news for two years with absolutely nothing to show for it to this day.

Nope, the only possibility is that the Kremlin suddenly figured out that humor is a thing.

The fact of the matter is that humorous lampooning of western establishment Russia narratives writes itself. The hypocrisy is so cartoonish, the emotions are so breathlessly over-the-top, the stories so riddled with plot holes and the agendas underlying them so glaringly obvious that they translate very easily into laughs. I myself recently authored a satire piece that a lot of people loved and which got picked up by numerous alternative media outlets, and all I did was write down all the various escalations this administration has made against Russia as though they were commands being given to Trump by Putin. It was extremely easy to write, and it was pretty damn funny if I do say so myself. And it didn’t take any Kremlin rubles or dezinformatsiya from St Petersburg to figure out how to write it.

“Ben Nimmo, an Atlantic Council researcher on Russian disinformation, told the BBC that attempts to create funny memes were part of the strategy as ‘disinformation for the information age’,” the article warns. Nimmo, ironically, is himself intimately involved with the British domestic disinformation firm Integrity Initiative, whose shady government-sponsored psyops against the Labour Party have sparked a national scandal that is likely far from reaching peak intensity.

“Most comedy programmes on Russian state television these days are anodyne affairs which either do not touch on political topics, or direct humour at the Kremlin’s perceived enemies abroad,” Robinson writes, which I found funny since I’d just recently read an excellent essay by Michael Tracey titled “Why has late night swapped laughs for lusting after Mueller?”

“If the late night ‘comedy’ of the Trump era has something resembling a ‘message,’ it’s that large segments of the nation’s liberal TV viewership are nervously tracking every Russia development with a passion that cannot be conducive to mental health – or for that matter, political efficacy,” Tracey writes, documenting numerous examples of the ways late night comedy now has audiences cheering for a US intelligence insider and Bush appointee instead of challenging power-serving media orthodoxies as programs like The Daily Show once did.

If you wanted the opposite of “anodyne affairs”, it would be comedians ridiculing the way all the establishment talking heads are manipulating their audiences into supporting the US intelligence community and FBI insiders. It would be excoriating the media environment in which unfathomably powerful world-dominating government agencies are subject to less scrutiny and criticism than a man trapped in an embassy who published inconvenient facts about those agencies. It certainly wouldn’t be the cast of Saturday Night Live singing “All I Want for Christmas Is You” to a framed portrait if Robert Mueller wearing a Santa hat. It doesn’t get much more anodyne than that.

Russia makes fun of western establishment narratives about it because those narratives are so incredibly easy to make fun of that they are essentially asking for it, and the nerdy way empire loyalists are suddenly crying victim about it is itself more comedy. When Guardian writer Carole Cadwalladr began insinuating that RT covering standard newsworthy people like Julian Assange and Nigel Farage was a conspiracy to “boost” those people for the advancement of Russian agendas instead of a news outlet doing the thing that news reporting is, RT rightly made fun of her for it. Cadwalladr reacted to RT’s mockery with a claim that she was a victim of “attacks”, instead of the recipient of perfectly justified ridicule for circulating an intensely moronic conspiracy theory.

Ah well. People are nuts and we’re hurtling toward a direct confrontation with a nuclear superpower. Sometimes there’s nothing else to do but laugh. As Wavy Gravy said, “Keep your sense of humor, my friend; if you don’t have a sense of humor it just isn’t funny anymore.”

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EU’s ‘toothless’ response to creation of Kosovo army risks worsening the crisis – Moscow

Russia’s ambassador to the UN said that the EU could have and should have done more to stop the breakaway region from creating its own army.

RT

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The creation of Kosovo’s own 5,000-strong army is a threat to peace and security in a turbulent region and may lead to a new escalation, Russia’s UN envoy has warned, calling the EU’s lackluster response irresponsible.

Speaking at the UN Security Council emergency meeting on Kosovo, Russia’s ambassador to the UN Vassily Nebenzya said that the EU could have and should have done more to stop the breakaway region from creating its own army to replace its lightly armed emergency response force.

“The EU reaction to the decision by Pristina cannot be described as other than toothless. This irresponsible policy has crossed the line,” Nebenzya said, after the UNSC meeting on Monday.

The diplomat said the lack of decisive action on the part of the 28-member bloc was a “great disappointment,” adding that the EU seems to “have turned a blind eye on the illegal creation of Kosovo’s ‘army.’”

The law, approved by Kosovo lawmakers on Friday, paves the way for doubling the size of the current Kosovo Security Force and for turning it into a de facto army, with 5,000 soldiers and 3,000 reservists.

The move did not go down well even with Kosovo’s usual backers, with both NATO and the EU voicing their indignation. NATO’s General Secretary Jens Stoltenberg called the decision “ill-timed” and lamented that Kosovo’s authorities had ignored “the concerns expressed by NATO.”

The EU’s top diplomat, Federica Mogherini, has echoed those concerns, saying in a statement that the mandate of Kosovo’s forces “should only be changed through an inclusive and gradual process” in accordance with the state’s constitution.

The only nation to openly applaud the controversial move was the US, with its ambassador to Kosovo, Phillip Kosnett, saying that Washington “reaffirms its support” for the upgrade as it is “only natural for Kosovo as a sovereign, independent country” to have a full-fledged army.

The Kosovo MPs’ decision has drawn anger in the Serbian capital Belgrade and provoked a strong response from Moscow, which calledon the UN mission in Kosovo to demilitarize the area in accordance with UNSC resolution 1244, and to disband any armed units.

Nebenzya pointed out that the UN resolution does not allow any Kosovo Albanian military units to be present in the region’s territory. He accused Western countries, including members of the NATO-led international peacekeeping force (KFOR), of “condoning and supporting” the violation by Pristina of the resolution.

It is feared that the army, though a relatively small force, might inflame tensions in the region and impede attempts at reconciliation between Pristina and Belgrade. Serbia has warned that it might consider an armed intervention if the army becomes a threat to the 120,000-strong Serb minority in Kosovo.

“The advance of Kosovo’s army presents a threat to the peace and security in the region, which may lead to the recurrence of the armed conflict,” Nebenzya stated.

In addition to creating its own army, Kosovo in November hit Serbia with a 100 percent import tariff on goods, defying calls by the US and the EU to roll the measure back.

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Ukraine’s President Says “High” Threat Of Russian Invasion, Urges NATO Entry In Next 5 Years

Poroshenko is trying desperately to hold on to power, even if it means provoking Russia.

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Via Zerohedge


Perhaps still seeking to justify imposing martial law over broad swathes of his country, and attempting to keep international pressure and media focus on a narrative of “Russian aggression,” Ukrainian President Petro Poroshenko denounced what he called the high “threat of Russian invasion” during a press conference on Sunday, according to Bloomberg.

Though what some analysts expected would be a rapid flair up of tit-for-tat incidents following the late November Kerch Strait seizure of three Ukrainian vessels and their crew by the Russian Navy has gone somewhat quiet, with no further major incident to follow, Poroshenko has continued to signal to the West that Russia could invade at any moment.

“The lion’s share of Russian troops remain” along the Russian border with Ukraine, Poroshenko told journalists at a press conference in the capital, Kiev. “Unfortunately, less than 10 percent were withdrawn,” he said, and added: “As of now, the threat of Russian troops invading remains. We have to be ready for this, we won’t allow a repeat of 2014.”

Poroshenko, who declared martial law on Nov. 26, citing at the time possible imminent “full-scale war with Russia” and Russian tank and troop build-up, on Sunday noted that he will end martial law on Dec. 26 and the temporarily suspended presidential campaign will kick off should there be no Russian invasion. He also previously banned all Russian males ages 16-60 from entering Ukraine as part of implementation of 30 days of martial law over ten provinces, though it’s unclear if this policy will be rescinded.

During his remarks, the Ukrainian president said his country should push to join NATO and the EU within the next five years, per Bloomberg:

While declining to announce whether he will seek a second term in the office, Poroshenko said that Ukraine should achieve peace, overcome the consequences of its economic crisis and to meet criteria to join the EU and the North Atlantic Treaty Organization during next five years.

But concerning both his retaining power and his ongoing “threat exaggeration” — there’s even widespread domestic acknowledgement that the two are clearly linked.

According to The Globe and Mail:

While Mr. Poroshenko’s domestic rivals accuse him of exaggerating the threat in order to boost his own flagging political fortunes — polls suggest Mr. Poroshenko is on track to lose his job in a March election — military experts say there are reasons to take the Ukrainian president’s warning seriously.

As we observed previously, while European officials have urged both sides to exercise restraint, the incident shows just how easily Russia and the West could be drawn into a military conflict over Ukraine.

Certainly Poroshenko’s words appear designed to telegraph just such an outcome, which would keep him in power as a war-time president, hasten more and massive western military support and aid, and quicken his country’s entry into NATO — the latter which is already treating Ukraine as a de facto strategic outpost.

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